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Pay less notice

January 2017 - Issue 89

Pursuant to the Housing Grants, Construction and Regeneration Act 1996, Section 111(3) allows a paying party to pay less than the notified sum provided notice is given. The notice must state the amount proposed to be withheld as well as the basis for which it has been calculated (Section 111(4)). This notice must be given no later than the prescribed period before the final date for payment.  Once the pay less notice is served, the paying party must pay the amount specified in the notice by the final date for payment, pursuant to Section 111(6).

However, what constitutes a valid Pay Less Notice has been subject to much debate in ‘smash and grab’ adjudications (with which some of you may be familiar from our seminar at the Doyle Club this month). The Technology and Construction Court recently gave some clarification in the case of Surrey and Sussex Healthcare NHS Trust ("the Trust") v Logan Construction (South East) Ltd ("Logan") [2017] EWHC 17. This case confirmed the standards to be applied to Pay Less Notices, as well as establishing that Pay Less Notices can be issued ‘just in case’.

BACKGROUND

The JCT Intermediate 2011 was used for the refurbishment works at East Surrey Hospital for which the Trust contracted with Logan, with practical completion being certified on 25 August 2016. The Trust continued to issue Interim Certificates every two months in accordance with the contract payment provisions, despite Logan making no further interim payment applications.

Discussions had been ongoing from June to September; A meeting was to be held on 21 September 2016 for which the Trust’s Final Certificate was due for service.

The day before the scheduled meeting, Logan emailed the Trust enclosing a document titled ‘Interim Payment Notice’ seeking approximately £1.1 million. The email was headed ‘…account meeting 21 September’ and there was no mention of the email being a payment notice; the Trust, therefore, believed the spreadsheet was regarding the discussions for the meeting the next day.

An agreement was not reached on the final account. The trust issued a Final Certificate, less the amount of £1.1 million from Logan’s IPN. The Final Certificate included a breakdown of the sum stated as being payable to Logan, as well as various documents that were attached. Additionally, the Trust referred to an IPN from Logan dated 24 August which was out of date and, therefore, void.

Logan disputed the sum included in the Final Certificate. Logan successfully argued at adjudication that the Trust's Final Certificate and covering email was not a valid Pay Less Notice and they were awarded the outstanding amount of its IPN.

The Trust subsequently issued Part 8 proceedings, requesting the TCC to declare that Logan's Payment Notice was invalid and that the Trust had issued a valid Pay Less Notice.

DECISION

The TCC concluded that the attached document to Logan’s email was an IPN in substance, form and intent and was ‘clear and free from ambiguity’.  In relation to the Pay Less Notice, the court found that to constitute a valid Pay Less Notice, the notice had to specify the sum that the Trust considered to be due at the date of the notice and how this was calculated. The notice fulfilled both those requirements and it was irrelevant that the Pay Less Notice was not addressed to Logan as it had been cc’d to it. The essential requirement was whether the Trust intended the notice to constitute a Pay Less Notice, despite not referencing it as such. The court held it did.

To avoid any ambiguity, it is always best to state when a document is a Pay Less Notice to avoid disputes. Contact one of our team today for more information of Pay Less Notices.

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